Jun 13 2016

DG CLIMA’s public meeting on ETS Innovation Fund: who said what

The Commission workshop High Level Round Table on Low-Carbon Innovation was held on 9 June to gather stakeholders’ views on the future ETS Innovation Fund. The Director General of DG CLIMA, Jos Delbeke, chaired it for the four hours that it lasted. The EIB, represented by Roland Schulze, took the floor several times, too. Their comments, quoted below, are the most noteworthy.

The roundtable brought forward more ideas for ETS Innovation Fund than the debates in June and July the European Parliament and Council (article).

Let’s pick a small number of areas to focus on

Gernot Klotz (President, K4I) was in favour of a competition limited to a few areas, saying, “It needs some top-down approach because it needs focus.” Commissioner Cañete took note of this request to “not try to spread the support all over the place,” as did Delbeke: “We should be very clear about which technology we want.” He had heard other stakeholders join Klotz, including Martin Porter from the Industrial Innovation for Competitiveness initiative (I24C) who said, “We can’t hide away from the need to make certain choices on the technologies to choose.” The think tank Bruegel had also called for this (among other measures) in its position paper of 2015: “develop a more methodological approach to technology selection”.

But 11 days later those following the evening event Innovation: the Way to a Low-Carbon Economy? took the opposite view. See tweet below.

Funds for making green products not green manufacturing

Some industry speakers (and some MEPs) wanted ETS Innovation Fund to directly support production of manufactured goods rather than improvements to the manufacturing process. Crucially the products would have to serve a green purpose. Roland Merger, Vice President Corporate Technology at BASF, was the first to suggest the idea and it found support from Nicolas de Warren of his competitor Arkema. The steel sector, also represented on the panel, was split. Thyssen Krupp’s Head of Innovation Strategy & Projects Markus Oles felt one has “a better chance to reduce in total our emissions in process than if we are only focused on products” and implied through his example that the cement sector would agree. The Director General of Eurofer Axel Eggert, meanwhile, said that so long as there was no worldwide price on carbon emissions, product innovation was the more viable way forward. [NER400.com comment below]

Alternatives to the “focus-on-products” and “focus-on-processes” approaches were put forward. Gernot Klotz called for NER400 to support “value chains” (the network of suppliers and other firms who make an installation possible) as opposed to installations by themselves. “Through the supply of technological elements,” he said, “other countries can participate and benefit, like in the car and ICT industries”. I24C wanted support for a similar concept that it called “ecosystems”.

Projects that take in whole value-chains or ecosystems would be bigger than ones with a smaller scope, implying less work for the EC per euro of support paid out by ETS Innovation Fund. Jos Delbeke pointed this out (see box immediately below).

“The alternative for us as a policy body is in the line of asking industry to make a cluster across sectors resulting in a project bigger than a project in my little sector. There is more a vision about what needs to be done, and there are more industrial players and more industrial sectors. If the consequence of that is bigger projects, we would be willing to take that because it would mean for us less bureaucracy because you would do more coordination. The more you go for tiny projects, the more we pay in terms of resources, man time for dealing with them all.”

— Jos Delbeke

Roland Schulze of the EIB, who has been closely involved with the predecessor of ETS Innovation Fund — NER300 — since its earliest days, repeatedly drew attention to the difficulty of fairly evaluating competing proposals that deal in product innovation or that set the challenge at a very high level, by demanding, for example that a project deliver a ‘functionality’ like thermal comfort. He visited or revisited the topic in every one of the three times he took the floor and was backed up by Martijn Overgaag of Ecofys (see box immediately below).

EIB official pushing for a clear and simple competition

“The idea to simplify on […] functionalities is very attractive. However, I think it will make it even more complicated to measure the value for money impact. […] If it would go that way […] we need to make sure there is no competition among other funds and they are not contradicting or the impact is anyway lost.” He does not want to see overlaps in the kinds of project that the EU’s different funding instruments serve.

“In my personal view, I think process innovation would be more effective with regard to contributing to positively to the objective of achieving a low-carbon economy because it is much more measurable and one can allocate it in the context of reducing CO2 emissions. […] A grant funding mechanism for innovation needs to have a clear indicator to measure that the public funding impact leads to tangible effects in the economy so that the public funding can see some value for money.”

“In principle I’m agnostic about process or product innovation. The challenge is how can one then identify a proper indicator to then make sure that public grant funding mechanisms will bring value for money. That is a task one has to think about very thoroughly. LCA (lifecycle assessment) very much depends on how one draws the boundaries around the calculation. It is probably not that easy [to draw the boundaries fairly]. I said I’m agnostic but from the clear measurement of an impact, process innovation is much easier.”

— Roland Schulze [NER400.com comment below]

Delbeke aligned himself with de Warren when he summed up the discussions: “We had the discussion on whether we should strive for optimising process emissions […] or whether we should go for product innovations […]. We concluded that in fact the best way to look at this is that there are a number of functionalities that we want to reach and at least five were suggested: we need more for insulation, lightweighting of materials, energy storage, lighting, improved energy efficiency in renewable energy not least of photovoltaic panels.” But Delbeke appeared to acknowledge Schulze’s concerns: “There were four or five elements that I noted from our discussion, of which ‘Keep it simple’. NER300 was overly complicated but the more we were going into the discussion I was holding my breath because if we have to put that into operation it could become as complicated as the NER300.” His willingness to imagine an ETS Innovation Fund that would fund product development did not seem totally sincere. He had also said, “You will hardly hear anyone in DG CLIMA talking about green industries and normal industries. We don’t do that. A windmill is steel, is concrete, is chemicals. These are traditional products that are combined in a very intelligent manner.” If DG CLIMA’s general attitude is to reduce a piece of technology to its inputs, it is hard to see how it will take precisely the opposite position in the case of ETS Innovation Fund to create a list of ‘green’ end-products.

A measurable selection criterion for the competition

Leaving to one side the question of whether environment-enhancing end products or rather the industrial processes that make them should be proper object of ETS Innovation Fund, one idea that resonated with the room was to select projects according to their ability to reduce greenhouse gas emissions. Merger said “We should look at which reduction potential in terms of carbon emissions they have” and Oles agreed that this metric should be used to “prioritise” proposals. At an event in May by Carbon Market Watch Tomas Wyns had introduced his report The Final Frontier. An idea it contained, to require industrial ETS Innovation Fund projects to demonstrate CO2 savings of at least 20% compared to a benchmark, found its way into amendments by the two leading European Parliament MEPs for the ETS Directive (and by several other MEPs), and Wyns plugged his idea at this event, too.

Graeme Sweeney, Chairman of the Zero Emissions Platform promoting CCS savaged the idea of requiring electricity-generating projects to achieve reduction in the levelised cost of electricity by 20% for the reasons given in this article. It, too, had found its way into the amendment proposed by Federley. He said, “It is barking mad.” Delbeke recognised that different approaches would be needed for both: “In each category you can go for the lowest cost of carbon. The story we have heard today from the manufacturing industry is very different and the game is more complicated than the lowest cost of carbon saved. That is one of the conclusions I take with me. The discussions we are having squarely confirm that when it comes to the allocation of funds to the manufacturing industry unlike the renewable sector, it’s a very different process we are faced up to and we need more and better ideas than may have worked for renewables under NER300.”

Europe first!

Klotz saw reducing the EU’s dependence on imported components as an important aim for ETS Innovation Fund. He challenged the audience, “Do we favour that all these processes [to develop technology] happen in Europe and get added value for Europe, because you can easily build a smart city with Amreican ICT, with solar panels from China and with materials from Saudi Arabia.” Delbeke took note. Two hours later, in his wrap-up, he said, “Do we want to maximise part of the low carbon activities inside the European Union and the answer was clearly ‘yes’ and for that we need the continuation of demonstration plants […] [where] low carbon technology that is not yet ripe for uptake by the market can be brought into the market. There were suggestions of how to maximise the European content. The European first idea was mentioned. It was not pursued much more,” but he implied that the mission “to maximise the European presence in low-carbon technology” is worthwhile.

Knowledge-sharing — speakers silent

A questioner twice asked the panellists for their views on ETS Innovation Fund’s knowledge-sharing rules. No answer came. Then Delbeke tried a third time, “The point that we were not hearing anything about was the knowledge-sharing that was repeatedly brought on the table. Any comments on the obligations under the current NER300?”

Only Merger responded, saying, “For me the main point is that how you do it is clear from the start so that when you apply for a project you do not end up with lengthy discussions and then you can make your decision whether you want to be part of the project or not.”

The Commission proposed no knowledge-sharing conditions for ETS Innovation Fund (see post). Delbeke offered this clue as to why that might be: “It was a heated point I remember when we adopted NER300 and the lack of clarity that is there now cannot be attributed to the Commission but to very difficult compromise making in the institutions.” Some MEPs want knowledge-sharing rules back put in.

Tolerant of failure

Delbeke appealed for NER400 to tolerate failure: “If you take risk, you are not always going to see success everywhere. You will also see a failure. Do we have a culture of accepting or do you want one or the other official — Commissioner or who else — to be blamed and to be taken up in a political scrutiny process that is as far as that is concerned not a pleasant one.” He retained the idea as one of the five mentioned in his summing up, although whether he meant “risk” or “expectations” is not clear: “We need to in particular manage the risk much better. […] We should get out of the blame game. If a technology does not make it nobody should have to be blamed.”

He had support from industry speakers: Klotz and Francesco Venturini, ENEL Green Power CEO.

A focus on demonstration projects

Commissioner Cañete defended the EC’s proposal to focus on demonstration projects: “Europeans have been very intelligent in delivering resarch in the past, but now we have to deliver innovation and every speaker has said we have given less attention than in the past. Big research budgets, but not concentrate on how we bring the patents to the market, how we develop the projects, and all the difficulties involved in that along the way. It’s complicated to patent. It’s much more complicated to bring a product to the market and make the consumers accept it.” Delbeke was blunter: “No research, no laboratories, no PhDs, but demonstration projects, pilot projects in industry.”

But what kind of demonstration projects? Delbeke said, “The intent is still to be clarified to what extent we go for breakthrough technologies breaking through, disrupting or whatever the name can be or on the other hand the rolling out of very interesting technology that are already known and are very interesting but for which the delta remains significant” [“delta” being the difference in cost between the output of the eco-friendly technology and that of the equivalent dirtier incumbent].

Next steps

  • Delbeke said, “We have lots of other policies […] [We do our] innovation policies collectively with a number of DGs, like DG Grow, DG RTD etc.” A coordination meeting with other DGs would take place immediately after the meeting.
  • Of his openness for fresh thinking from the Council and European Parliament he said, “We are motivated to make something more specific than what is there in the ETS proposal. In the ETS proposal, it was capturing a lot of ideas but in a not-too-specific manner, so the co-legislators will have to put more flesh on the bones and whatever is not spelt out in the Directive will have to be spelt out later in an Implementing Decision. So once the ideas are clear we can come forward with more operational thoughts about what needs to be done.”
  • Of the timing (note the meeting was held before the Brexit referendum result) he said, “Our thinking is open, but only for a while because legislation will be adopted, presumably second half 2017, so it’s now time to take heart and conclude in the next couple of months because otherwise the opportunity for modification of our proposal that was deliberately left more open compared to the NER300 but without having filled out the last detail yet.”

  1. NER400.com’s comment

    Roland Schulze is right to insist on a clear selection criterion for the projects in the competition, especially as the competition will span a wide range of very different technologies. Basing selection on non-quantitative criteria like a degree of innovativeness will make it harder for the losers to accept the result.

    Product innovation would not be an appropriate object for ETS Innovation Fund even if the products eligible for funding are useful for shifting to a low-carbon economy. The focus, for projects in industry, must be on cutting process emissions because ETS Innovation Fund’s purpose is to help European companies protect themselves from carbon leakage. The risk of carbon leakage (i.e. the risk of an industry shifting to a part of the world where environmental standards are lower) is not reduced by helping those companies make their products more attractive to consumers, at least not directly. Delbeke is right to be sceptical.

Jun 08 2016

Knowledge-sharing rules erased from the ETS legislative text

The ETS Directive 2009 put a requirement on the owners of installations that were awarded NER300 money to share results and experiences from its operation. The EC proposed removing this from the legislative text governing ETS Innovation Fund, leaving the only reference to knowledge-sharing in the recitals.

Neither Federley nor Duncan have so far drafted amendments that would put knowledge-sharing back into the legislative text. ***UPDATE 13 Sept 2016: The Greens-EFA have proposed amendments requiring knowledge-sharing (ITRE: 439; ENVI: 441)***

Stakeholders’ views

(as expressed in the public consultation on revision of the EU Emission Trading System (EU ETS) Directive)

BDEW and IOGP are pro. BDEW: “Projects shall be selected on the basis of objective and transparent criteria that include requirements for knowledge-sharing.” IOGP: “Pre-commercial/demonstration programmes should stimulate and maximise learning, as well as sharing and broadening knowledge in areas where there are gaps. This would increase confidence in CCS and also improve public support.” Finnish Forest Industries Association is anti: “More limited knowledge sharing. IPR should secure noticeable exclusive rights to the industrial player for more than 5 years.”

Shell says, “It would be beneficial if the EU Commission clearly defined foreground and background knowledge, with clear protection provided for knowledge developed by a company prior to it submitting an application.” [Editor’s note: The distinction is clear in the EC’s Horizon 2020 programme and was made clear as NER300 developed.]

  1. NER400.com’s comment

    MEPs or the Council should put knowledge-sharing rules into ETS Innovation Fund. They should be more robust than those of NER300, not less, and proportionate to the nature and amount of funding/finance required from the Fund.

    Companies that do not get awards must be allowed to stand on the shoulders of the lucky ones that do by learning from their mistakes or successes. Info on the installation’s performance should be published in the form, for example, of high-resolution time-series data-sets. This is necessary to make swift progress in bringing climate-protecting technologies to market and is consistent with the EC’s agenda on Open Data, recently given support in the Council.

Jun 08 2016

Dutch Presidency publishes paper covering the Council’s progress on ETS Innovation Fund

…(and the ETS 2030 file more generally). The paper includes the lines,

“The selection of projects/the allocation of funds should be primarily based on merit, while access to bid on fair terms should be enabled to allow for a wide and balanced geographical spread of projects. Most delegations are in favour of simplified procedures for smaller projects, also to enable a wide geographical spread of projects.”

“The Presidency proposes to further explore the need for a wide geographical spread if simplified procedures and access to bid on fair terms are in place. The Presidency invites industry to come forward with concrete ideas regarding the use of the Innovation Fund.”

Presidency note

  1. NER400.com’s comment

    The Presidency is wise to listen to industry (both power and non-power sectors) and advance cautiously. It is also what the Impact Assessment advises in regard to choosing the maximum funding rate. It says, “it is not possible to simulate the effect of higher funding rates based on current experience with the NER 300” and recommends that co-funding rates for RES, CCS and industry be identified “through more extensive market testing in the context of preparing the implementing legislation for the Innovation Fund.” This line appears in the Impact Assessment body and annex (p59, p222) and in the executive summary of the Impact Assessment (SWD (2015) 136). It is odd, therefore, that the EC in its legislative proposals pre-empted this exercise and plumped for 60% as a flat rate for all the sectors concerned by ETS Innovation Fund, and odder still that MEP Duncan should feel he has the insight to confidently boost it to 75%.

Jun 08 2016

MEP Ian Duncan hands in his amendments on ETS Innovation Fund

Ian Duncan is an MEP in the Environment Committee of the European Parliament. He shares the lead on ETS Innovation Fund with Fredrick Federley in the Industry, Research and Energy Committee.

***UPDATE 20 June 2016: This article might have over-stated Mr Duncan’s support for CCS, at least according to his tweet below from the Politico/Shell event of this evening, where he also made a comment that goes against the kind of companies or consortia that can mount multi-billion euro projects: “[Bigger companies] should be innovating without the Funds frankly – they’ve got plenty of cash at the moment. So I don’t think they’re the ones that need it.”***


He wants (in common with Fredrick Federley)

  • 150 M more EUAs for ETS Innovation Fund than proposed by the EC, and for them to be exclusively destined to projects to decarbonise heavy industry
  • to remove all provisions related to the distribution of projects among Member States, unlike the EC, which proposes ‘geographic balance’. On this point, Federley’s intuition that Member States will resist the move is correct, as has been made clear by the Council at every occasion (here, here and most recently here).

He also wants

  • a selection process that would be based on a project’s “impact on energy systems or industrial processes within a Member State, a group of Member States or the Union”
  • clearer support for CCU (“A number of [Member States] ask for explicit mentioning” of the same thing, reported the Dutch Presidency on 3 June 2016)
  • Up to 20% of total number of allowances to one project (European Commission proposal: 15%)
  • more generous funding per project: 75% of costs (ahead of EC’s 60%)
  • the possibility to get up to 60% of the award on the strength of effort rather than successful operation of the installation (as against the EC’s proposal of 40%)
  • allowances for the Innovation Fund to “be shared equally between the auction share and the free allocation share” (putting him, a centre-right MEP of the ECR Group on a collision course with the other, larger centre-right EPP Group, which wants all allowances to be taken from the auctioned share).

His Draft Report setting out his views is here.

Shell and Politico are giving him a platform to set out his views at this event (Brussels, 20 June). Shell is a partner in the Peterhead CCS project (one of two projects that had been in the DECC’s CCS competition until the competition was cancelled in November 2015).

  1. NER400.com’s comment

    It’s a surprise Mr Duncan’s middle initials aren’t “C. C. S.”, or perhaps “CCU”. His amendments are geared towards helping projects that require enormous sums of public money, and he (correctly) sees geographic balance as an obstacle in that endeavour. The Carbon Capture and Storage Association and ROAD, a frontrunning CCS project, were the only respondents out of 400+ to the consultation on revision of the EU Emission Trading System (EU ETS) Directive to comment on the overall funding cap, and both said no cap should be placed on funding for CCS.

    Under his proposals, assuming he accepts the EC’s forecast of an average carbon price of 25 EUR / tonne over the period of ETS Innovation Fund, a single CCS project could scoop an award of 3 bn EUR, 1.8 bn EUR of which it would get to keep without ever producing a MWh of electricity.

    Mr Duncan says his 20% ceiling is “to guarantee enough support for breakthrough technologies.” ‘Breakthrough’ might be the wrong word. Technologies that require the public to take on so much liability in absolute and relative terms in single installations should be called ‘forcethrough’ technologies.

    CCS is far from universally popular among the public consultation respondents, including industry. Details here.

Jun 07 2016

Attitudes to CCS, CCU and coal’s place in NER400

This article is written from the published responses to the European Commission consultation on revision of the EU Emission Trading System (EU ETS) Directive, which closed on 16 March 2015.

***UPDATE 17 June 2016: Information on the Belgian government’s position has been published (integrated below).***

CCS

Pro

Except for the companies trying to earn money from CCS technology and the associations that support them, Sandbag is the most fervently pro-CCS respondent. It said, “The Commission should bring forward proposals for an EU-wide target for greenhouse gas sequestration, in order to stimulate Member States to offer the support to CCS, as has happened successfully with the Renewables targets.” (Editor’s note: a future article will cover its radical position on earmarking in ETS Innovation Fund).

Two speak up for ‘Bio-CCS’, in which the CO2 released from the combustion of biomass is stored rather than vented to the atmosphere, Bellona and Magnus Nilsson Produktion. The latter says, “Storing 80% of the emission from a coal plant is not good enough while storing 25 % of the CO2 from a biomass fuelled plant is extremely interesting. It might be worth favouring CCS in combination with biomass use.”

Austrian Federal Economic Chamber — Wirtschaftskammer Österreich (WKÖ) says, “So far, the funding of renewable energy projects has been the main focus of the NER 300. However, more effort should be undertaken to realise European projects for CCS.”

CCS is the third priority of Carbon Market Watch / Nature Code and five other NGOs, and then only for industrial applications, not power generation (the line taken by MEP Gerben-Jan Gerbrandy, also).

Member States

Speaking at the Green Growth Summit on 17 September 2015, Amber Rudd (the UK’s Secretary of State for Energy and Climate Change), said that the fact that ETS Innovation Fund would be “open to Carbon Capture & Storage (CCS) and industrial low carbon projects for first time” was one of three things the UK liked about the EC’s proposals for Phase IV of the ETS. On 26 November, however, the UK government cancelled funding for its own flagship CCS programme.

The Belgian government, in three lines on ETS Innovation Fund in its position paper circulated to the Council of Ministers, wrote, “Specific projects for the capture or use of carbon dioxide should also be eligible for funding from this innovation fund.”

Anti

Projekt21plus: “We have to note that we see critical aspect about the technology of CCS, concerning acceptance and feasibility and are not in favor to support further research in CCS with EU finances.”

Glass for Europe and 11 glass companies say CCS is a “very costly end-of-pipe technique, subject to critics and lack of acceptance.”

CEMBUREAU is also put off by the cost: “The most important point for CCS is that the operational costs of a plant equipped with post-combustion carbon capture technology are expected to be double the cost of a conventional cement plant.” So are CIPCEL and CPME: “For years the NER300 program has targeted CCS linked to power generation and the result is disappointing due to the massive infrastructure costs and time needed to implement CCS properly.” EPF says, “The NER300 programme hasn’t been fully implemented because of the huge cost of CCS projects.” Its solution would be to trap CO2 by making durable products out of wood.

Metal producers are also inclined to scepticism. Aluminium producer Trimet: “it should be scrutinized whether the funding of CCS technology is still appropriate”. Aurubis (copper producer) asks whether resource-efficiency and a list of other technologies would be more cost-efficient than CCS. It and Royal DSM (generalist materials producer) wonder whether CCS is the right “focus”.

Opposition is found in central Europe from two Czech organisations (CEZ and Czech chamber of commerce) and the Polish government (including more recent statements). Bavaria (Bavarian State Ministry of the Environment and Consumer Protection) is condemnatory: “CCS is no realistic option in near future.”

CCS in industry

The European Lime Association, EuLA, points out that in lime manufacture, “68% of the total CO2 emissions are so-called ‘process emissions’ originating from the decarbonation of the limestone.” The challenge of decarbonising sectors with a high proportion of “irreducible ‘process’ emissions” was highlighted by its Spanish member, ANCADE. E3G appears to consider that they as well as chemicals, pulp & paper, and steel “should be given ‘priority focus'” as “electrification is not a viable option” for them.

Different technological responses are proposed to tackle process emissions. EuLA favours CCS, but UNESID, which represents steel manufacturers, proposed moving from carbon to hydrogen as a reducing agent: “The case of hydrogen is a clear case in which a demonstration or pilot plant would need a very tailor-made support, since these kind of plants neither are or are expected to be profitable in a short/medium even long term. It would need [an] affordable and widespread [hydrogen] generation and distribution.”

CCU — carbon capture and use

CEEP is the most enthusiastic supporter of CCU, more so than when it responded to the 2014 public consultation (compare 2015 “We strongly advise including CCU as having a substantial chance of success” with 2014: “new developments concerning a decrease of CO2 emissions should be supported starting from power production efficiency, no matter if it is based on coal, gas or other sources of energy such as RES and the utilisation of CO2“).

CEMBUREAU: “Given the issues related to CO2 storage, R&D related to new alternatives to reuse or valorize the CO2 captured should be promoted and financially supported. […] Regulatory barriers, such as the one related to the ‘Transferred CO2‘ (included in the MRV of the EU-ETS for the period 2013-2020) which only allows the subtraction of the transferred CO2 if it will be ‘for the purpose of long-term geological storage’ should be removed.”

Projekt21plus “could imagine” a programme “with focus on recycling of carbon instead of storage” providing it does not lead to “any additional emissions”. It singles out methanation, which is a technique for storing electricity also known as ‘power-to-gas’, as an example of where such recycling would be “imaginable”. Two other respondents, ENAGAS and IOGP, referred to power-to-gas as a technology to store electricity (ENAGAS advocating the use of gas in transport applications). Others spoke about electricity storage more generally (see below). Exclude coal from ETS Innovation Fund’s scope, Projekt21plus proposes.

Royal DSM, Aurubis and VIK (materials / power) wonder if CCU isn’t more cost-efficient than CCS. [Editor’s comment: maybe, but the two technologies serve different purposes]

Coal

Martin Korolec, Poland’s Government plenipotentiary for climate policy, wrote that ETS Innovation Fund “should be eligible for all low-emission energy technologies, including clean coal technologies.”

Polish Lime Association (Stowarzyszenie Przemyslu Wapienniczego) said, “the development of so-called clean coal technologies and low-emission and high-efficiency coal technology should find its place in the development of climate policy.”